In this otherwise excellent column, he repeats one theme which I don't believe stands up to scrutiny: he worries about "a climate in which executives are reluctant to take reasonable business risks for fear that they'll turn into legal problems." Can someone give a realistic example of a situation in which legal issues of this type prevent a reasonable business risk?

I love this. Got a problem with decreasing consumer demand? Businesses cutting back (or holding back) because they don't see the customers coming in the door? Solution: concentrate wealth EVEN MORE at the top! DUH!

I ran a business for 15 years. There was one and only one thing that caused me to hire people or increase investment - customers coming in the door with money to spend. The government handing me a tax cut did nothing - NOTHING - to change that. (By the way, thanks for the money, I'll put it in the bank - in the Cayman Islands.)

Four of five points would be handled better by Mr Clinton. As for point #2 ... "What you talkin' about, Wessels?"

>>Rally the Europeans and Japanese to revive global growth..<<

Is this guy for real? The three US based proposals seem like taking nutcrackers to smash a rock. But when he leaves the US he really shows how far from reality he is. The Japanese have been trying hard for ten years to climb out of a deep hole that Germany may now be about to fall into. Of course if you could wish your way out...

What a contemptuous attitude towards Japanese and Europeans.

>>Embrace Latin America, again...<<

Oh no, not this one. Argentina has also just fallen into a very dark place, and Brazil seems to be contaminating. What we need are concrete policy proposals, not platitudes. The principal danger of the current dynamic is that Latin America detaches the way Africa did in the ninetees.

And of course, no mention of China.

I only have two questions: does David Wessel have anything between his ears, and can you really get paid for writing stuff like this.

I'm sorry, I can't resist it. Here's what one rather more intelligent Japanese observer (Morgan Stanley's Takehiro Sato)has to say about the US:

>>The FRB rejected market consensus and went ahead with a 50bps rate cut, dropping the FF rate to 1.25%. To veteran BoJ watchers, this move is reminiscent of Japan’s monetary easing in March-April 1995. The Bank at that time had (in late 1994) been encouraging the unsecured call rate to move higher amid rising cyclical recovery momentum. Yet it was forced to switch course to monetary easing by a series of negative shocks......In retrospect, efforts in 1995 to reenergize markets by taking stronger-than-expected additional monetary easing were a significant milestone on the road to ZIRP. In fact, the economy itself, and not only financial markets, shifted from inflation to deflation expectations from 1995. Data for various key macro parameters, such as relationships between short-term rates and the long-term/short-term rate spread and the current account surplus and long-term rates, show a major dislocation occurring in 1995.

Nearly two and a half years have passed since the IT bubble collapsed (around 10 quarters), and the US is approaching the point at which the deflation impact from Japan’s stock price collapse started to manifest itself in the real economy.<<
http://www.morganstanley.com/GEFdata/digests/20021108-fri.html#anchor6

Dr. Pangloss forgot an essential ingredient in his whimsical economic cocktail: being compelled to wear a smile and whistle depression-era tunes like
"Life is Just a Bowl of Cherries" and "We're in the Money."

I'm sure Professor Delong's preternatually bright nine-year-old would see through this nonsense in a flash.

"Dad, dad, can I ask you a question?"
"Yes."
"I read that article in the Wall Street Journal you recommended and there's something I don't understand."
"What's that?"
"If I own three factories and only have sufficient orders for two of them, why would I want to build a fourth?"

Edward Hugh is right that the rate cuts aren't going to work. The banks are full of money, the Fed can't make them lend it out. Mostly this is because of monetary deflation, and the best bet is to just hold onto your cash, because it appreciates against all other goods as time goes by. But also because the deflation has hurt business confidence -- nobody can really figure out why the economy crashed, (is anybody really still dumb enough to believe the internet did it?) so the lenders don't risk their money.

>>Oh no, not this one. Argentina has also just fallen into a very dark place, and Brazil seems to be contaminating. <<

You say this as if it were an Act of God and had nothing whatever to do with O'Neill and Bush's actions over the last two years.

I know! The US needs structural adjustment! The same type of 'tough medicine' we've been urging on poor and powerless developing countries for years, for their own good, of course.

According to the boilerplate policies laid down by the IMF and supported by both Bush and Clinton, we should: Raise interest rates sky high to boost foreign investment. Enact 'cost recovery' measures that charge users fees for all public education, free clinic visits, and food assistance. Also, congress should be forced to pass, and the President to sign, a measure putting an immediate end to all deficit spending. If the President has to sign it while an arrogant IMFie stands imperiously over his desk, so much the better.

Imagine the electrifying effect if President Bush looked to the voters and declared: "We know you are forced into economic policies that will be painful today so that our people will live better tomorrow."

It's easy to bash IMF policies, and I think they've made all kinds of mistakes. But what realistic alternative is there?

Walt, look at Thailand, which post 1997 spurned IMF advice. Or Russia since Putin. Or Ireland cutting taxes left and right. Malaysia. First of course they have to go through Hell. Things have to get really bad before working against the advice of the biggest world banks is an attractive option.

Many of these places are currently described as in the grip of crony capitalism, if you read The Economist. It's a smear phrase applied to any pro-business, anti-IMF leader.

I would think that Ireland has a strong enough underlying economy that it's not in real danger of capital flight, or a banking system collapse.

Wasn't it Malaysia that spurned the IMF, not Thailand? That's an interesting case -- I wonder if capital controls would have worked for Argentina.

Ireland came under attack after attack from the ECB for cutting taxes too much and growing too fast.

You've found the nut of the problem, though capital controls only worked for a certain reason. In 1997 the monetary deflation began signalled by commodity prices. The Asian countries and South American countries were pegged to the dollar... a dollar which in the early 90s was very stable. But their debts were denominated in dollars, which became steadily more valuable. That is why capital controls and breaking the dollar linkage worked well for Malaysia, and why Indonesia, working under the IMF, went down the tubes.

Thailand elected a billionaire busienssman who ran specifically against the IMF. I wonder what the AK party (of Turkey) said about the IMF. It hasn't been in the papers because the papers think it's the only way to go. It takes a long time for the papers to catch up with the people.

>>You say this as if it were an Act of God and had nothing whatever to do with O'Neill and Bush's actions over the last two years<<

I'm afraid the sorry truth is that I think it is neither of these. Argentina is in the mess it is since it bought the silly idea of having a dollar-peso peg in the early ninetees. Then because of an ill-judged IMF loan in January 2001 all responsible politicians lost their credibility (and some irresponsible ones too). The Argentinian people were asked to make an enormous sacrifice to try to save a an idea (surely idealism of the worst sort, but little to do with a divinity). Now there are no serious politicians with enough political credibility to turn the thing round (there are of course a lot of corrupt and stupid politicians there, but among the many things you can place at Bush and O'Neil's door I somehow doubt you can justify this one).

Brazil is contaminating due to it's close trading ties with Argentina, and the global slowdown. Simple answers are not normally the best, but if I were to offer one BIG reason why Latin American countries are finding things hard right now I would take a hard look at China as an attraction for foreign investment, and as an important force in the global trade arena.

Politicians like to think they can fix these type of things, but my feeling is that this is another example of where they overestimate their own importance. (Of course they can do something, but often less than they or we like to think). That we continue to believe in their powers, this may have something to do with a reluctance to surrender the idea that the universe has some kind of divine-given order, with us at the centre.

Oh, and on silly ideas and well-meaning politicians, it is worth remembering that the Euro is another of these currency 'fixes' with France and Germany cast in the role of the US and Greece, Portugal and Spain in that of inflation-plagued Argentina. If these three have to leave the Euro zone under unfortunate circumstances later this decade, again I will blame neither god, nor George W.

We need a payroll tax cut now for both business and workers. This tax cut should be work for the lame ducks, because the economy is slowing to recession.

If the budget projection fantacy tax cuts need to be rolled back to accomodate it, OK, but utlimately, tax policy in ten years will be set by circumstances at that time.

Mr Hugh,

True enough that politicians like to think they can fix things. They also like to think they can demand that things work in a way that makes them vulnerable to politicians fixes (look at the way governors have demanded an internet sales tax, ignoring that the first state to break out wins). Still, in Argentina's case, the period of being an IMF darling was squandered. With inflation bottled up (no matter how ill-conceived the cork), attention could have been turned to the budget arrengements between the national and state governments, to the judiciary, to the term structure of debt, to any number of issues. Instead, being the IMF"s darling was taken mostly as a period to talk about such problems, while doing little. When a China shows up as competition for funds after a decade of squandered opportunity, it's too late to save the situation. That does not mean government couldn't have done something, merely that it didn't.

Donor governments, on the other hand, have minimal impact on what really matters (judicial, budget, term structure issues), and do tend to pretend to greater influence. They have a good record of delaying the inevitable, sometimes long enough to actually avoid it. We'll see how Turkey turns out.

>>>>I'm afraid the sorry truth is that I think it is neither of these. Argentina is in the mess it is since it bought the silly idea of having a dollar-peso peg in the early ninetees.

Dear Edward Hugh, I would take your comments about the inability of government to fix these problems more seriously, if you hadn't misinterpreted events to lay the blame on people who tried to take government OUT of the monetary system.

The dollar-peso peg worked in the early nineties exactly as you might have wished it. The problem came with the governmental action in 1997, not in Argentina, but here in the US, where the Fed worked to slow the rising stock market and consequently deflated the dollar.

The problem was that the Fed governors thought they were smarter than the investors and day traders, and so tried to beat down stock prices by starving the banks of reserves. Yes, Argentina was working on a flawed program. But making them devalue to sell exports to the US is now discredited.

Of all the suggestions made, a short term tax cut makes the most sense. Ignoring polical considerations, the payroll tax for business and individuals would seem the most appropriate tax to cut to increase both employment and consumption.

All of current collections are needed for current payments, so some cutting can be done for a short period of time. How do you restore and replace the reduction later? That is the problem with any tax cut. Obviously, find another source. How about a national lottery?

Obviously, I meant to say that current current collections exceed current payments.

as for the business owner that didn't expand due to tax cuts.. did you mean personal or business?? cause all I can go is HUH!!

from all the econ that I know (maybe I'm an idiot) interest rate cut is equivalent to a tax rate cut (with variance factor thrown in). The idea being that investments have higher payoffs, so that you need less revs to justify the investment, moving the investment curve and thus increasing investment...

I've never gotten an answer as to why this is incorrect.. I'd really love one!

as for latam.. they've never really had economies (it's all fascist bs where the state is in bed with its crony capitalists, bullying out entrants, and so much bureaucracy that its impossible to legally acquire title or start a business... yeah thats from de soto's "mystery of capital" read it!)

oh and for the short termers.. that's the dumbest idea ever!!! It's better to leave taxes then to cut them for a short period. You don't affect long term production or investment (as companies expect to have higher taxes when the investment is paying off), you reduce revenues, and you massively distort the economy

Short term interest rates are just like 0% car financing: they're steroids that bring forward (and in tax cases also move backward) economic activity into the benefit window.. It's much more honest to just spend cash rather than have a short term tax cut (and not rebates, spend more through the gov't.. it has less total cost for the benefit it provides.. more efficient)